How to Manufacture Invention

If there is a marketplace of ideas, Edward Jung and Nathan Myhrvold want to profit by it. The two Microsoft alumni formed Seattle-based Intellectual Ventures in 2000 to be the go-to place for creative thinking. Instead of developing new products, Intellectual Ventures has developed a portfolio of inventions, or "invention capital" as they call it, which the firm has patented and licenses to other companies. Jung, currently the chief technology officer, spoke last week from his office in Seattle with NEWSWEEK's Andrew Bast about what makes ideas valuable and why success often means putting up with failure. Excerpts:

NEWSWEEK: Can we start with the seemingly most obvious but probably most perplexing question: What is an idea?
Edward Jung: We think of an idea as an action that causes a reaction, and that reaction creates products of value. I'll give two examples. If you made a diagnostic device that could give you early treatment of cancer, there is some very definite value: extended lifetimes, economic value, products that you could put on the shelf, and so on. But then there are other ideas like pandemic control that would clearly create a lot of value for society and people in general, but it is a little hard to figure out how you would charge for it. That is one of the things that would differentiate pure ideas from extremely applied ideas. Once you have an idea like solving pandemics, though, sometimes someone will figure out how to create economics around that, even though nobody knows how to do it today.

What, then, is a good idea?
At the heart of it, Intellectual Ventures is a capitalist company, so to us a good idea is nominated by some notion that it could be reduced to something practical. You could have an idea that is literally quite concrete, like how do you make your cell-phone battery life better. Very practical. But if you go back to the pandemic, that's also a good idea because it benefits society in general. So what we've done internally is divide goodness into many different categories, many time domains and many levels of certainty that we can actually create some economic value out of it. Some of our crazy future ideas are very risky, but because we do it at such a large scale, we can do a few of those as well as ones who are safer, more nearer term and more easily translated into economics. But good also depends on the area of technology you are in. So a good idea in computer science is measured differently than a good idea in life science.

Much of capitalism's genius is its incessant pressure to innovate. To that end, are good ideas losing out because they're not economically viable?
Let's say you're a public company. Your shareholders have a certain time horizon they have been trained to look at, and it is very difficult for your to invest outside of it. So if they are pressuring you for every quarter's results and you fail to meet those results, you're punished and naturally you're not going to be investing further down the chain. If part of your brand is to be very future-looking, however, then your shareholders will have much more patience. What is economic depends on where you've positioned yourself. We have a whole part of what we do that is positioned very far in the future. Because we work on intellectual property and not necessarily on product, by our nature we have investors who tend to be more patient. That allows us to operate in a domain that is further out in terms of its economic value. Other companies do this too. If you're big enough, you can invest a good amount in research.

A company like General Electric, for instance?
Or Microsoft, who has a pure research group. It's actually one of the largest research groups in the industry, and that's because they have a lot of money. We can push even further out, because people's expectations aren't that we are going to produce the product, but we are going to produce the infrastructure to allow other people to create products. In that sense, we can expand the definition of what is economic to think about. I think that's valuable.

If you have to take so many leaps, then how do you gauge risk?
Ultimately, it's similar to taking that stack of papers and dropping it off the top of a staircase, right? There's a bit of "who knows?" and reality will eventually tell you. A lot of what we do is roadmaps. We can sit down and think about—and we've done this—with the rising costs of health care and the shift to chronic diseases and the change of demographics in civilized countries and the way socialized medicine is working, really what is going to happen to health care in the next 10 or 20 years? What needs to happen? What will be the economic pressures and therefore where are innovations necessary? We can think about that without the constraint of, "What is our business today?" In that context, ideas have a much purer value. For example, if an idea requires a complete change in the way socialized medicine works, well, OK, that's a pretty risky idea. It has to be a really fantastic idea to change something like that. That context, both what's happening today and the pure form of what needs to be solved allow us to try and assess that risk.

Wouldn't you say that human beings are most innovative when their backs are up against the wall?
This is a matter of opinion, but I think when people's backs are to the wall, that's not when great ideas come up. That's when great ideas get funded. Right now there's a lot of stock thinking about alternative energy, because we feel that our backs are coming up to the wall. That's not the best way to fund innovation, but it shows you that creating the incentive or capital will get more people to develop the ideas. I happen to think that when you find a great inventor, they invent all the time. You can't stop them, in fact. At one of our first invention sessions, the icemaker in the refrigerator broke. Inventors, among other things, seem to need caffeinated beverages, and immediately you had three or four top-notch inventors inventing new icemakers.

On the spot?
On the spot. They said, "The icemaker broke. Oh, hey, why do icemakers work this way? Well, here's a better way to make an icemaker. No, here's another way." And instantly, we had several new icemaker inventions. Now, we can create lots of new inventions and ultimately we can't pursue them all. So we have a process we call triage, and those didn't make it in triage because icemakers weren't as interesting as some of the other problems we were solving. But it goes to show that inventors will invent, if given the opportunity. You don't have to wait until your back is up against the wall.

What kind of education makes the most innovative people?
That's a hard one to answer. It's not the educational background as much as it's the personality that develops and much of that comes from the context in which they were raised and obviously some is genetics. It is interesting that we're operating globally now and you tend to see more flexible inventors—big idea inventors—coming out of the U.S. instead of a lot of other countries.

Why is that?
Among the countries we operate in, by many metrics the U.S. actually has the worst education system. Why is it that we kind of have the worst education system but the best innovation track record? It's because, I believe, culturally we have a lot of people who have no fear of failure. The beauty, not of our education system, but of our culture, is that we will rebound from failure. Once I talked to a huge multinational company in Asia. When the CEO walks down the hall, everyone stands up and bows. I gave a talk about how many failures I had in starting new groups at Microsoft. At the end, I put a timeline down of my failures and I turned to the chairman of the company and all of his CEOs and said, "If I was at your company, when would you have fired me?" He pointed at the timeline and said, "Frankly, probably in your first year." I told him that if that were the case, I probably wouldn't have lasted long enough to create things of real value that I did at Microsoft, then, would I? Ultimately, most common among the great inventors we work with is that they have no fear of failure, no respect for the boundaries of their education, yet they are self-aware enough to take input from others.

Is technological innovation different from innovations in politics? Or can Karl Marx and John Adams readily be compared to Albert Einstein and Thomas Edison?
I have a different way of categorizing political and technical ideas. I actually think those guys came up with what we would call today great business-model ideas. They're not necessarily all about capital, but they have to do with how to organize people or processes to accomplish a goal. So I don't differentiate political ideas from others. I do however divide ideas into ones that are potentially win-win versus those that are more zero-sum. In general, because technology fuels economic growth, there are a higher proportion of technology ideas that are win-win than political ideas. To the extent that you end up with a political idea like capitalism that creates a lot of growth, maybe there is a win-win there, though a lot of people argue that there are a lot of losers in capitalism. Look at the pandemic example I gave earlier. There is a huge social component there. It's not just technology.